LONDON, Oct 9 (Reuters) - Aviva is replacing its chief executive Mark Wilson after his sweeping transformation of the British insurer did not deliver the returns shareholders were looking for.

During his six years in charge, the high-profile 52-year-old New Zealander oversaw one of the biggest insurance takeovers in a decade by buying Friend's Life in 2016, cut back its geographic footprint and improved profitability.

However, since Wilson joined its stock is up 25 percent against a 61 percent return for the insurance sector within the FTSE-100, and has fallen 17 percent since the Friend's Life deal, while the sector has slipped only 7 percent, Aviva said.

"There is much further to go in accelerating our strategic development and enhancing shareholder value. We have agreed with Mark this is the right time for a new leader to ensure Aviva delivers to its full potential," said Chairman Adrian Montague, who will replace Wilson while a successor is found.

A lack of agreement with Aviva's board on the best way for the insurer to turn its share price performance around contributed to the decision to part ways with Wilson, a source familiar with the situation told Reuters.

Wilson was not available for comment.

Formed through the merger of Norwich Union and CGU in 2000, Aviva can trace its heritage back to the Hand in Hand insurance company which was established in 1696, thirty years after the Great Fire of London.

Aviva, whose shares were up 1.7 percent on Tuesday, said it aimed to find a replacement for Wilson, who will remain at the group until April to help with the transition, within the next four months after assessing internal and external candidates.

"My perception was that Wilson was well regarded, but then I suppose the shares have not done much during his tenure," one shareholder who is among the biggest 40 holders of Aviva shares, told Reuters following news of his departure.

Montague will be assisted by a "Chairman's Committee" of Andy Briggs, CEO of UK Insurance, Chief Financial Officer Thomas Stoddard and Maurice Tulloch, CEO, International Insurance.

INVESTOR CONFIDENCE

Although some were surprised by the decision to part ways with Wilson, some analysts said the timing made sense.

"The story going forward is about addressing skepticism on earnings delivery and franchise quality and a new CEO may be better positioned for this," Citi analysts James Shuck and Andrew Baker wrote in a note to clients.

Aviva said it was on track for operating earnings per share growth of more than 5 percent in 2018 and a dividend payout ratio of 55-60 percent of operating earnings per share by 2020.

In its most recent earnings in August, Aviva posted a 2 percent fall in first-half operating profit, hit by disposal costs, weaker profits in Canada, one of its core markets, and a rise in weather-related claims.

Barclays analyst Alan Devlin said Wilson had "lost investors' confidence" with the 5.6 billion pound ($7.33 billion) Friend's Life deal and the time taken to restructure.

"Arguably it is only complete now 2018 the first year of much lower restructuring costs 2018 restructuring costs 50 million pounds versus average of 250 million pounds over the past five years," Devlin said in a note to clients.

In addition to increasing Aviva's assets under management to more than 300 billion pounds, Wilson also reduced its markets to 14 from 28, increased its operating profit and ramped up the insurer's technology investment. ($1 = 0.7642 pounds) (Reporting by Simon Jessop; editing by Sinead Cruise/ Jason Neely/Alexander Smith)